Titan company: Glittering performance augments market share gains for Titan

What’s Buzzing:

Titan company witnessed strong rebound in demand across business segments in Q2FY22 owing to pent up demand and improved consumer sentiments. Revenues from the jewellery segment surpassed pre-covid levels, while watches segment witnessed 96% revenue recovery rate. The stock price has rallied ~ 42% in the last six months and currently trades at premium valuations of 55x FY24E EPS.

Context:

Titan’s jewellery revenue growth (excluding gold bullion sale) came in at robust 78% YoY in Q2FY22, which was a strong beat on consensus estimates. The higher growth can be partially attributed to favourable base (-2% topline de-growth), however 2-year CAGR still remains impressive at 32%. As per our channel checks, regional jewellery players in Q2FY22 had reached ~85-90% of pre-covid rates. This indicates consistent market share gains for Tanishq as was also witnessed in Q2FY21 (Tanishq’s recovery rate: 98% vs. 55-70% recovery rate for regional players). Both plain and studded segment grew in double digit, however growth was much stronger in the plain gold segment which led to studded mix being still below pre-pandemic levels. During the quarter company added 13 new stores in the segment taking total store count to 414 stores.  Among other segments, on a YoY basis watches grew by 73% while eyewear revenues increased by 74%

Our perspective:

Titan appears to have benefitted from the financial and operational stress witnessed by unorganised players (during the pandemic) who are still grappling with the negative impact on their business. We believe that company is well placed to continue to gain market share from unorganised players and recent regulatory changes like compulsory gold hallmarking is likely to accelerate the pace of market share gain for organised players. Softening of gold prices (down 8% QoQ) coupled with strong festive and wedding season to accelerate growth trajectory from Q3FY22 onwards. We build in revenue and earnings CAGR of 22% and 53% respectively, in FY21-24E. Robust business model (30%+ RoCE) and strong earnings visibility will enable Titan to sustain its premium valuations going forward.

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